Public policy and the initiative and referendum: a survey with some new evidence

Abstract

This paper surveys the extensive literature that seeks to estimate the effect of the initiative and referendum on public policy. The evidence on the referendum uniformly finds that requiring voter approval for new spending (or new debt) results in lower spending (or lower debt). The initiative process is associated with lower spending and taxes in American states and Swiss cantons, but with higher spending in cities. The initiative is consistently associated with more conservative social policies. Policies are more likely to be congruent with majority opinion in states with the initiative process than states without the initiative, suggesting that direct democracy allows the majority to counteract the power of special interests in policy making.

Appendix

This appendix explains why the congruence of jurisdictions with and without direct democracy cannot be compared from regressions of the form of Eq. (3). The discussion is adapted from Matsusaka (2001); see also Achen (1977) and Golder and Stramski (2010).

In a slight change in notation from the text, define congruence as

$$CONG_{i} = - \left| {x_{i} - x_{i}^{*} } \right|,$$

(5)

where xi is the policy outcome that prevails in jurisdiction i, and xi* is the policy outcome that the voter would like to prevail (in the text V = x*). The preferred policy x* could be the median voter’s ideal point, the majority position, or some other measure.

Now suppose that x* cannot be observed, but that the researcher has access to a public opinion variable P that is correlated with x* according to x* = f(P), where f is an increasing function. For example, the policy is the income tax rate and P is an ideology index or a vector of demographic variables. Critically, while we know that x* and P are correlated, we do not know the precise functional form of f. Because P and x are measured on different scales (5) cannot be implemented. Consider instead a regression of the form

$$x_{i} = a + bP_{i} + u_{i} ,$$

(6)

where a and b are coefficients to be estimated. The coefficient on the proxy for constituent preferences, b, is sometimes referred to as “responsiveness” in the literature. The question is: what is the formal connection between responsiveness b and congruence? The answer is: none, in general.

Consider Fig. 8. In a perfectly congruent world, the policy would be x = x*, and all observations would lie on the f function: x = f(P). In such a case, there would be a positive relation between outcomes and the preference proxy, and regression (6) would yield b > 0.

Now consider comparisons of congruence between jurisdictions with and without direct democracy. Denote the two groups we would like to compare as GDD and G0. We would like to measure the mean of CONG = − |x − f(P)| for each group, but f is not observable. Suppose instead that equation (6) is estimated separately for each group, producing responsiveness coefficients bDD and b0 (or, as is more common in practice, a single regression is estimated with an interaction term that allows the coefficient on preferences to vary by group). What can we learn about relative congruence from a comparison of the two coefficients?

Figure 8 shows a hypothetical case. The cluster of points GDD represents opinion-outcome observations for one group and the cluster labeled G0 represents observations for the other group. Note that in this example, (1) the policy outcomes for group G0 are less congruent (more distant) with public preferences than the outcomes for group GDD, but (2) if regression (6) is estimated separately for the two groups, we would find bDD < b0 (or, in an interaction framework with G0 as the null and GDD as the interaction, we would find a negative coefficient on the interaction term). In this case, the regression estimates of b are inversely related to congruence. It is straightforward to construct examples in which the regression estimates of b are positively correlated with congruence. The implication is that the coefficient b is not an indicator of congruence, and therefore regressions (6) do not permit comparison of congruence between the two groups.

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